Zenith Bank second quarter 2017 results released on the floor of the Nigerian Stock Exchange showed that the bank grew its profit before tax PBT by 120 per cent to N48 billion. The strong profit growth was driven by growth of 389 per cent to N88.5 billion of non-interest income line. The bank gross income during the half year grew from N214 billion to N380.4 billion. Interest income inched up from N181.4 billion during the same period of 2016 to N262.3 billion in 2017. Interest expenses jumped from N54 billion in 2016 to N123 billion in the first half of 2017. Net interest income improved marginally from N127 billion to N139 billion.
The bank Non interest income which stood at N33.4 billion in the first half of 2016 rose to N118.2 billion in the first six months of 2017. Operating expenses also grew from N92 billion in the first half of 2016 to N122 billion in the same period of 2017.
Zenith bank growth in non interest income was pushed by a strong performance in foreign exchange trading income which grew to N46 billion from a loss of -N496 million in 2016.
According to Afrinvest in its note to investors the bank “funding income came in flat on annualised basis. The strong revenue contribution was enough to completely offset increases of 196 per cent and 39 per cent in loan loss provision and operating expenses respectively.
“Further down the profit and loss P&L, Profit before tax PAT declined by 19 per cent to N31.4 billion mainly because of a negative result of –N6.3 billion in other comprehensive income line compared with a strong gain of N30.2 billion in second quarter of 2016 on the same line. On a sequential basis, the results mirrored the year on year trends. PBT was up by 9% q/q. Again, robust growth of 199 per cent quarter by quarter on the non-interest income line was the key driver underpinning the growth in PBT.
“PAT fell by -19% q/ because of the negative result on the OCI line. Compared with our forecasts, PBT beat by 22%. However, PAT was broadly (-4%) in line with our N32.8 billion forecast. In terms of the half of the year performance, PBT and PAT expanded by 71 per cent year on year and 8 per cent to N92.2 billion and N70.3 billion respectively. Although both revenue lines contributed to the strong results, non-interest income which grew by 254 per cent on annual basis was the major driver.
The yearly growth on the funding income line was 9 per cent. Zenith is proposing an interim dividend of N0.25 which is flat and in line with our expectations. The proposed dividend translates to a dividend yield of 1.0 per cent and a payout ratio of 11.2 per cent.
Analyst at Afrinvest said “While the strength of the non-interest income result will be welcomed, we believe the weakness on the funding income line and the spikes in impairments and operating expenses will also attract investors’ attention. On funding income, it appears that Zenith also may have struggled to capitalise effectively on the elevated yields in the fixed income market because sourcing deposits may have been trickier, and the workings of the NAFEX foreign exchange market may also have led to a loss of funds from customers. Its deposits fell -1 per cent.
